Brian Ashcroft

19 November 2013

Independence Fact No.1

Trade flows, migration flows and capital flows are significantly lower across international borders than within a country.

Memo:

This holds even if the countries are in a monetary union, single market or free trade area.

This holds after adjustments are made for size of region/country, proximity, language and culture

In 2010, 67% of Scottish exports were to the rest of the UK - see here.

Evidence:

National borders matter: Canada-US regional trade patterns, McCallum (1995). Intra-national versus International trade. How stubborn are nations in Global Integration, Wei (1996). National Borders and International Trade: Evidence from the European Union, Nitsch (2000). Intranational Home Bias in Trade, Wolf (2000). Gravity with Gravitas: A solution to the Border Puzzle, Anderson and van Wincoop (2003). The border effects in Spain, an industry-level analysis, Requena and Llano (2006). Is the International Border Effect Larger than the Domestic Border Effect? Evidence from U.S. Trade, Coughlin and Novy (2012). Is the EU internal market suffering from an integration deficit? Estimating the 'home-bias effect', Pacchioli (2011). Gravity Equations: Workhorse, Toolkit and Cookbook, Head and Mayer (2013

Comments

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If 67% of Scotttish "exports" were to the rest of the UK then that tells me two things.

1. Due to chronic underinvestment in manufacturing in particular we are not making a wide enough range of "stuff" to make it attractive to a broader market.

2. The potential - assuming we can make a wide enough range of "stuff" - is therefore absolutely enormous and that provides Scotland with an opportunity we shouldn't be ignoring and makes the case for independence considerably stronger.

The posting of course raises the question: would an independent Scotland be able to replace the present level of trade it has with the rest of the UK - currently its major customer for exports? No doubt the rUK would also lose a market - this might be the least of London's worries - if Scotland departs.

Political clout at G20 meetings has become crucial, especially if the world is to move to 'sustainable' trade as the article recommends.
"the real scope for sustainable export strength lies outside Europe and our historic traditional UK export markets. . . many commentators still don’t quite get the scale at which the world has already changed".